New home mortgages: Pros & Cons

A buy-to-let mortgage is a popular way of getting onto the property ladder, and making income from properties. These are standard in the market, but does it differ when the property is a new build? Below we discuss the positives and drawbacks of new-build buy to let mortgages.

Can I get a buy to let mortgage on a new build home?

Yes. Whilst it might be more difficult than getting a standard buy-to-let mortgage, there certainly are mortgage providers in the market that offer these types of products. If you are looking to invest in one of these types of mortgages, the best thing you can do is to contact your mortgage broker and find out all the information you can to put yourself in the best position possible when applying. Buy-to-let mortgages on new build homes are often more expensive as well, so by seeking expert advice, you can assess the financial viability of the purchase and find out ways to save yourself some money. 

Are new-build buy-to-let mortgages difficult to get?

It can be more challenging to get a new-build buy-to-let mortgage because the market of lenders that offer these products is smaller, but there are still lenders out there!

It can be trickier to get these types of mortgages as mortgage lenders view them as riskier than a standard buy-to-let, especially if the development is in an area that is yet to be established. Lenders will typically assess the property more and put tighter restrictions in place to feel comfortable about offering these types of mortgages. 

New build BTL homes vs older homes?

With different criteria but similar processes, it can be difficult to differentiate between new build and older home mortgages, especially if you are trying to decide which type of investment is best for you and your situation. Buyers with a large portfolio of complex buy-to-lets will be different from buyers looking to purchase their first property for investment purchases. As situations vary, reach out for expert advice if you are unsure of what to do. Below are some of the differences, positives, and negatives to new-build home mortgages.

Benefits of new-build buy-to-lets

Despite being more challenging to get a buy-to-let mortgage for a new build, there are definitely benefits to seeing it through. For one, they are generally much more energy-efficient. With EPC requirements becoming more and more strict and with the minimum standard increasing by 2028, this could be a reason in itself to invest in this type of property. Similarly, they should generally be cheaper to maintain than older homes, as they should be completed to a high standard, so the landlords can profit from the rental income as soon as they get a tenant.

Drawbacks of new-build buy-to-let houses 

Due to the difficulties of accessing a buy-to-let mortgage for a new build, it is tempting to stick with an older home and get a more standard mortgage. With new-build’s having stricter eligibility criteria and higher deposit requirements, those new to property investment may want to start with a property that is already guaranteed to generate income. For first-time landlords, the chances of getting a new-build buy-to-let mortgage are slimmer, as most lenders prefer landlords with some experience.

 

How will mortgage lenders assess my affordability?

Lenders will assess your affordability based on your credit score, which is the same as checking for existing or older properties. However, the main thing that mortgage lenders will want to check for new build properties is whether the rental income from the property will cover your mortgage payments. For new homes, lenders will normally expect the rental coverage to be around 125-140%. This assessment is important for lenders as it helps them see whether the investment is financially viable. It is another step of assessing the risk of doing business with you as a client.

As well as this, mortgage lenders may have a personal income requirement for landlords looking to purchase a new build. This differs from most standard buy-to-let mortgages, where there is often no minimum income requirement for a mortgage. On average, lenders require a minimum personal income of around £25,000.

 

What will affect my application?

With income requirements and higher deposits, new home mortgages are tricky to get your hands on, so it’s important to be aware of all the factors that affect your application. By speaking with your mortgage broker, you may be able to get yourself into a better position upon applying for a new home mortgage. Things to be aware of when you’re applying that may hold you back are: 

 

Credit Rating 

If you have a bad credit score or rating, lenders may be hesitant to do business with you. Depending on how recent your credit history is will affect how much of a problem it will be on your application. Different lenders view marks on your credit rating differently, so it's best to speak to an experienced broker who can point you in the direction of the best lender to suit your circumstances.

Upper Age Limits

Most lenders have a top age limit to whom they will lend. If they assess that a client will reach retirement age within the mortgage term, they could either increase their current rates or decide not to accept the application. However, some lenders have a higher or no maximum age limit, so if this applies to you, speaking to a mortgage broker can help you find a lender who does not have an age limit; see our case study for an example this scenario.

If you are self-employed

For self-employed landlords, there are only minor differences to your application process. In terms of the mortgage deals that are available to you, you'll have the same access as those in full-time employment. The difference is how you prove your income to mortgage lenders and how they then assess this is. Some lenders are more experienced in catering for self-employed clients, so seeking expert mortgage advice could help you access these deals.

If the property you are purchasing has non-standard construction

Properties made with non-standard construction techniques are classed as a higher risk to lenders and subsequently not accepted as standard by lenders. However, as with other points above, there are specialist lenders who will offer on properties with non-standard construction. They can be harder to finance for this reason.

Will new homes appreciate in value at a faster rate?

Not necessarily. Many builders and developers may offer financial enticements to encourage and attract investments, but as with most goods, new-build properties usually come at a premium cost and are usually comparatively more expensive. Whilst cosmetically they may look much nicer to buyers and prospective tenants, new homes are not new forever. It is always important to ensure that you are financially prepared for any future repairs before deciding on investing in a new build property. It may be that you would be able to add more value to an existing property in an area that is proven to attract tenants than to purchase a new build where this is unknown.

How much deposit will I need for a buy to let on a new build?

The difference in deposit size between new builds and buy-to-lets is one of the key factors that set the two apart. Lending criteria for new build properties are at about 35% as the standard, which is 20% than the average for buy-to-let. 

There are a couple of reasons why mortgage lenders set the deposit sizes for new build properties at a much higher standard. The main issue is that these properties are seen as a higher risk because they are new, and there is no proof of rental income and demand. 

Your mortgage options may be even more limited if you are trying to purchase a property 'off-plan' – where you are buying the property before all of the building work has been completed. Trying to complete any mortgage applications for the property at this stage is not favoured by lenders because of the risk of delays to the development work, and the value of the property fluctuating and decreasing from the initial predicted value that their loan would be set at. In this scenario, it would become incredibly important to ensure that your financial situation was secure enough to pay for the property, which is why the lending criteria are so rigid.

If you are looking at purchasing a new build property, I can help find the right buy-to-let mortgage for your next purchase. Call or email us at

If you are looking at purchasing a new build property, I can help find the right buy-to-let mortgage for your next purchase. Call 01625 416 394 or email me at chrisU@mortgagesforbusiness.co.uk

NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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